American Is Rated Top 2015 Airline Pick by JPMorgan as Oil Prices Fall

[Overspeed]

Baker listed five reasons for picking American. He expects the operating margin to rise to 18.3% in 2015 from 12% in 2014. He views the management team as "highly capable and tested in merger integration." He thinks consensus earnings estimates are too low: analysts surveyed by Thomson Reuters estimate profit of $8.09 a share, compared with a consensus estimate of $5.71 in the current year.

In addition, because American does not hedge fuel it benefits more from falling fuel prices than carriers that do hedge.
 
Finally, Baker said he "could envision a scenario in which American is included in the S&P 500 Index if positive earnings are recorded" in the current quarter. "Such an event would attract a more stable, longer-term investor base," he said.
 
 
http://business-news.thestreet.com/dallas-morning-news/story/american-is-rated-top-2015-airline-pick-by-jpmorgan-as-oil-prices-fall/12982495

 

[AANOTOK]

Why is this posted in the AA Forum?? Shouldn't it be over in the Delta Forum so it can be dissected, dismantled, dismembered, autopsied etc...then buried six feet under!  B)

 

[dfw gen]

If they only worked here and saw the mess it is.
Highly profitable and we work under a bankruptcy contract with no releif in sight!

 

[CMH_GSE]

Why is this posted in the AA Forum?? Shouldn't it be over in the Delta Forum so it can be dissected, dismantled, dismembered, autopsied etc...then buried six feet under!  B)

Don't worry, WT will be here shortly with his thesis on why AA should just liquidate now, because they have no chance.

 

[robbedagain]

overspeed  its nice you put this here  the sad reality is bec its not dl  its just not gonna fly    itll be anytime before it is completely dissected and found to be horrible bec it is not that ole wiget.

 

[Overspeed]

I apologize

 

[jcw]

Yes there is no way AA could outperform DL - we should ask the moderators to close this thread

 

[WorldTraveler]

has AA given any guidance for 2015?

how come AA's pretax operating margin in the 4th quarter 2014 is lower than other carriers that have hedged and will have hedge losses?

how come AA's RASM growth is lower than other carriers?

suppose that perhaps all of the hedge losses at other carriers aren't enough to overcome their higher revenue generating ability and the currency losses that AA is seeing? btw, the value of the Brazilian Real to the USD is now at 10 year lows. when AA's largest foreign point of sale driven market in Latin America is seeing weakness as large as it is, there will be a noticeable effect on AA's revenue generating ability

http://finance.yahoo.com/echarts?s=USDBRL=X&t=5d&l=on&z=m&q=l&c=

remember, AA does not hedge. Not fuel. Not currency.

JP Morgan might want to factor REVENUE alongside their calculations that are based just on fuel hedges.

 

[JFK Fleet Service]

Odd, I thought the "Language of Wall Street" was the language of some...

 

[WorldTraveler]

it is.... but that doesn't change that an analyst is basing his forecast estimates on his estimates and without consideration of the revenue environment which has clearly deteriorated in a number of key markets... Europe and Latin America are obvious from AA's latest RASM updates in their quarterly financial report.

but AA was comparable to the industry in system RASM growth but that has changed.

Further, other than an obscure comment in AA's financial disclosures regarding its Venezuela cash. No analyst that I have read has taken a position regarding that situation which AA has to face.

and finally how that the competition that I have long said was coming to Latin America and DFW and other key AA markets is factored in at the same time that Latin currencies are declining, it might very well be obvious why AA is missing revenue at rate that is in an inverse relationship to other carriers' fuel hedge losses.

It is fine to talk about the benefit that AA is gaining from not having fuel hedges - but instead an accurate measure of how a company does has to include all factors.

 

[FrugalFlyerv2.0]

suppose that perhaps all of the hedge losses at other carriers aren't enough to overcome their higher revenue generating ability and the currency losses that AA is seeing? btw, the value of the Brazilian Real to the USD is now at 10 year lows. when AA's largest foreign point of sale driven market in Latin America is seeing weakness as large as it is, there will be a noticeable effect on AA's revenue generating ability
 

 
So AA faces a challenge of having approx. $750 million tied up in Venezuela.
Interestingly, the resident DL cheerleader ignores the fact that just for 2015 DL stands to lose $1.5 billion in fuel hedges.
I guess if I was drinking Kool-aiDL I would see that as a strategic advantage for DL.
BTW:  speaking of currency problems, the devaluation of the yen is also great news for DL, you know, the largest USA-based carrier operating at NRT.
 
 

Further, other than an obscure comment in AA's financial disclosures regarding its Venezuela cash. No analyst that I have read has taken a position regarding that situation which AA has to face.
 

 
It's amazing how stupid people who analyze airline performance metrics for a living are compared to anonymous posters on the internet.

 

[WorldTraveler]

So AA faces a challenge of having approx. $750 million tied up in Venezuela.
Interestingly, the resident DL cheerleader ignores the fact that just for 2015 DL stands to lose $1.5 billion in fuel hedges.
I guess if I was drinking Kool-aiDL I would see that as a strategic advantage for DL.
BTW:  speaking of currency problems, the devaluation of the yen is also great news for DL, you know, the largest USA-based carrier operating at NRT.

no, I missed nothing.

nowhere have I ever said that DL wouldn't face hedging losses.

what has been lost in these conversations including by the so-called analysts is that every carrier that has hedged will face losses. For some reason, the discussions have focused on one airline. DL is the only carrier that has provided any indication of the size of those hedging losses but others most certainly have them.

red flag number one.

AA's own financial statements in the last quarter showed a RASM decline of over 11% for Latin America - the highest of any carrier in any global region in at least a decade - perhaps longer.

When you or anyone else factors in the amount of revenue that a 10% reduction in revenue in Latin America represents for AA, then it isn't hard to see why the hedging losses in Venezuela plus a 10% drop in revenue very closely approximate even the $1.5B in hedging losses that DL alone will

I have yet to see any analysis that factors in the drop in revenue in Latin America - AA's largest global region - into any modeling for industry profitability in 2015. To pretend it doesn't exist is simply negligent.

red flag two

and third, there is a reason why even with the Latin America issues in the last quarter, AA's revenue generation and profits managed to remain in line with the industry. AA's RASM gain for the 4th quarter is now below the estimates for DL and WN. no one has yet to explain why AA's RASM is now failing? DFW, Europe?

red flag number 3.

and finally, while you and others downplay the effect of what would appear to be fairly small RASM changes, can you tell us what ONE PERCENT of $40 BILLION is?

The big 3 are all roughly $40 billion companies.

When you can tell us what one percent of their revenue represents, then it might be clear why even a 1% increase in revenue can overcome a significant difference compared to costs.

I said before the merger was ever consummated that revenue would be the deciding factor in determining its success. AA got a nice post-merger bump in revenue because of the elimination of US' domestic fare policies that targeted AA. Now that we have lapped one year, not only are those domestic advantages not increasing at anywhere near the same level but the int'l market in which AA has been trying to grow is getting weaker - in part due to a strong dollar - while AA's strongest revenue region is also seeing slowing growth in some of the key markets as well as currency issues in others.

And AA has yet to deal with any of the major merger integration issues including the costs associated with them - most of which will come in 2015.

 

[commavia]

So now we're giving advice to JPMorgan on how to calculate financial models, too?  Suppose that shouldn't be surprising, considering the "language of WS investors" with which some of us are allegedly so fluent.
 
Delta says it expects an operating margin of 11.5-12.5% in 4Q14, and AA's last update projected a 10-12% pre-tax margin for the same quarter, so while it's not apples-to-apples, it appears AA is already in the same ballpark as Delta on a margin basis, despite being barely one year post-merger.  In that context, it is notable that a person with actual (as opposed to imagined) financial and accounting acumen thinks AA could achieve operating margins approaching 20% in 2015.  (By comparison, it appears Delta's own target for itself is 15%.)
 
Now that AA's merger with USAirways, following United's merger with Continental, has eliminated virtually any meaningful network advantage that Delta had - internationally or domestically - following the merger with Northwest, it will be absolutely hilarious to watch the revisionist history and denialism as AA and United steadily close any financial advantage with Delta in coming years.  Delta continues to outperform its network peers for the moment - no question - in my view because they have a multi-year head start.  We'll see where things stand five years from now.

 

[WorldTraveler]

no, I am giving advice to people here who take investment houses' analysis as the Gospel truth.

Investment houses aren't held to any legal standard for whether they miss revenue estimates.... the SEC does do that for publicly listed companies.

when AA gives investor guidance for 2015, let us know.

btw, did you use all of your toes to calculate what 1% of $40 billion? 2%? 3%?

if you do you will find that revenue matters a whole lot more in even small percentages that some people want to say are insignificant

The headstart you note that DL has had must also consider how much of AA's profits have come from its heavily concentrated markets such as Latin America, LHR, MIA, and DFW.

No other carrier faces as much growth in competition in their markets as AA does.

that should be the reason why all of this heady revenue growth you predict might be far more at all other airlines than at AA.

Along with that RASM calculation, perhaps you can tell us why AA's RASM projection is lower than other carriers.

 

[commavia]

AA indeed faces competition in many of its markets - often from Delta - because, frankly, AA is so strong if not dominant in a lot of choice markets, like South America, LHR, etc.  Delta is playing catch-up because they have no choice - they have to.  Good for them.  But at the end of the day, RASM and competition don't matter.  What matters is margins, and ultimately, what matters the absolute most is cash.  If AA thinks it can produce margins and cash flow essentially in line with, if not better than, Delta - and the market agrees - than all of this endless, stupid babble is meaningless.
 
Meaningless, but alas, not surprising.  We have all been treated - for literally years - to the endless diatribes about how Delta had such a clear and insurmountable network advantage to AA.  Now that these arguments are and have been rapidly crumbling, we're hearing about Delta's clear and insurmountable financial advantage.  Again - we'll see how things look in a few years from now.